While this remains bad news the rate at which heath care is increasingly costing those in the USA has been slower the last 5 years than it has been in past years. Basically the system is getting worse at a slower rate than we used to be, so while that isn’t great, it beats getting worse as quickly as we used to be. For the last 5 years the rate of increase has been between 3.6% and 4.1%.

GDP has increased more than inflation. As the GDP grows the economy has more production for society to split. The split between the extremely wealthy and the rest of society has become much more weighted to the extremely wealthy (they have taken most of the gains to the overall economy in the last 20 years). Health care has a similar track record of devouring the gains made by the economy. This has resulted in health care spending soaring over the decades in an absolute basis and as a percentage of GDP.

The slow down in how badly the health care system has performed in the USA has resulted in the share of GDP taken by the health care system finally stabilizing. Health care spending has remained near 17.4% since 2009. While hardly great news, this is much better news than we have had in the last 30 years from the USA health care system. The percentage of GDP taken by the USA health care system is double what other rich countries spend with no better health results.

It is similar to if a team started as a championship team and then got worse every year and now they have finally stopped getting even worse. Granted they have become the worst team in the league but if, say, their record has now been 5-55 for 3 years in a row, they at least are not winning fewer game in each subsequent year anymore. But you can hardly think you are doing a great job when you are clearly the worst team each and every year.

Obviously there is a need for much much more improvement in the USA health care system. Still stopping the growth in spending, as a percent of GDP, is a positive step toward drastically decreasing it to reach a level more in live with all other rich countries. Even this goal is only to have the USA reach a level of mediocrity. If you actually believe the USA can to better than mediocre that would imply a combination of drastic declines in spending (close to 50%) and drastic gains in outcomes. Decreasing spending by 50% would put the USA at essentially the definition of mediocre – middling result with average spending.

Health Spending by Type of Service or Product

Hospital Care: Hospital spending increased 4.3% to $936.9 billion in 2013 compared to 5.7% growth in 2012. The lower growth in 2013 was influenced by growth in both prices and non-price factors (which include the use and intensity of services).

Physician and Clinical Services: Spending on physician and clinical services increased 3.8% in 2013 to $586.7 billion, from 4.5% growth in 2012. Slower price growth in 2013 was the main cause of the slowdown, as prices grew less than 0.1%, due in part to the sequester and a zero-percent payment update.

Other Professional Services: Spending for other professional services reached $80.2 billion in 2013, and increased 4.5%, slower than the 5.0% growth in 2012. Spending in this category includes establishments of independent health practitioners (except physicians and dentists) that primarily provide services such as physical therapy, optometry, podiatry, or chiropractic medicine.

Dental Services: Spending for dental services increased 0.9% in 2013 to $111.0 billion, compared to 2012 when growth was 2.2%. Out-of-pocket spending for dental services accounted for 42% of all dental spending while private health insurance accounted for 47% (I am not sure how the remaining 11% was paid – medicare? VA? all government health care?)

Other Health, Residential, and Personal Care Services spending grew 5.8% in 2013 to $148.2 billion, the same rate of growth as
in 2012. This category includes expenditures for medical services that are generally delivered by providers in non-traditional settings such as schools, community centers, and the workplace; as well as by ambulance providers and residential mental health and substance abuse facilities.

Home Health Care: Spending growth for freestanding home health care agencies decelerated in 2013, increasing 3.4% to $79.8 billion following growth of 4.5% in 2012. Medicare and Medicaid spending accounted for approximately 80 percent of total home health care spending in 2013.

Nursing Care Facilities and Continuing Care Retirement Communities: Spending for freestanding nursing care facilities and continuing care retirement communities increased 2.4% in 2013 to $155.8 billion, up from growth of 2.0% in 2012. The faster growth in 2013 was primarily due to an increase in Medicare spending after a one-time downward rate adjustment for skilled nursing facilities in 2012.

Prescription Drugs: Retail prescription drug spending grew 2.5% to $271.1 billion, compared to 0.5% growth in 2012. Faster growth in 2013 resulted from price increases for brand-name and specialty drugs, increased spending on new medicines, and increased utilization. I believe this is classified as retail to exclude all the costs for prescription drugs used in hospitals, nursing homes, etc. that is counted elsewhere.

Durable Medical Equipment: Retail spending for durable medical equipment reached $43 billion in 2013, and increased 4.2%, slower than the 5.6% growth in 2012. Spending in this category includes items such as contact lenses, eyeglasses and hearing aids.

Other Non-durable Medical Products: Retail spending for other non-durable medical products, such as over-the-counter medicines, medical instruments, and surgical dressings, grew 4.0% to $55.9 billion in 2013. This was a faster rate of growth than in 2012, when spending grew 1.8%.

Health Spending by Major Sources of Funds:

Medicare: Medicare spending, which represented 20% of national health spending in 2013, grew 3.4% to $585.7 billion, a slowdown from growth of 4.0% in 2012. This slowdown was attributed largely to slower enrollment growth and impacts of the Affordable Care Act (ACA) and sequestration.

Medicaid: Total Medicaid spending (15% of national health spending) grew 6.1% in 2013 to $449.4 billion, an acceleration from 4.0 percent growth in 2012. Federal Medicaid expenditures increased 6.2% in 2013, while state and local Medicaid expenditures grew 5.9%.

Private Health Insurance: Overall, premiums reached $961.7 billion in 2013 (representing a 33% share of national health spending), and increased 2.8%, compared to 4.0% in 2012. The net cost ratio for private health insurance—the difference between premiums and benefits as a share of premiums—was 12.0% in 2013, the same as in 2012. Private health insurance enrollment increased 0.7% to 189.3 million in 2013, but was still 8.2 million lower than in 2007.

Out-of-Pocket spending, which accounted for 12% of national health spending, grew 3.2% in 2013 to $339.4 billion, a deceleration from growth of 3.6% in 2012.

I am not sure what the other 20% is. I believe non-profit foundations are a portion, maybe the whole 20% (though I doubt it). Maybe government health care, VA, active duty military health care spending?

Health Spending by Type of Sponsor*

In 2013, households accounted for the largest share of spending (28%), followed by the federal government (26%), private businesses (21%), and state and local governments (17%). My guess is charities and foundations make up the remaining 8% (though I may be wrong).

Household health spending grew 2.8% in 2013—a slower rate of growth than the 4.8% rate in 2012—due in part to the low rate of increase in employee contributions to private health insurance premiums. Despite the slower growth in 2013, the household share of health spending has remained steady at 28% since 2010.

Federal government spending for health care increased 3.5% in 2013 after declining 0.2% in 2012. Faster growth was influenced in part by an increase in Medicaid payments to primary care physicians mandated by the ACA. The Federal government share of health spending has decreased in recent years, from 27% in 2011 to 26% in both 2012 and 2013, primarily due to the expiration in June 2011 of enhanced federal matching rates for Medicaid mandated by the American Recovery and Reinvestment Act of 2009.

State and local government spending increased 3.2% in 2013. This increase followed strong growth of 6.3% in 2012 and 9.3% in 2011 that was also due largely to the expiration of enhanced federal Medicaid matching rates for states. During the period 2010 – 2013, the share of health spending financed by state and local governments increased from 16% to 17%.

Health care spending financed by private businesses increased 4.0% in 2013, much higher than the average increase of 0.7% during 2008–10 caused by recession-related job losses and declines in private health insurance enrollment during and just after the recession. The private business share of overall health spending has remained fairly steady since 2009, at about 21%.

The data in this post is provided by the US Department of Health and Human Services. I provide a direct link to the data, in my experience USA government sites break direct links fairly quickly unfortunately, in the last few years they have often just made the links to the current data, which is better than it used to be, but still is lame. They should provide permanent urls …/[year]/[report]/[specific_details] for example… if, as in this case they have maybe 10 separate document on this one report.

* Type of sponsor is defined as the entity that is ultimately responsible for financing the health care bill, such as private businesses, households, and governments. These sponsors pay health insurance premiums and out-of-pocket costs, or finance health care through dedicated taxes and/or general revenues.

The USA health care system was deemed a deadly disease by W. Edwards Deming decades ago and it has only been doing increasing damage the USA economy and society. We need to take much more effective steps to improve the system. The problems are very challenging especially because the system problems are largely created by bought and paid for political parties who have for decades allowed the health care system to damage the economy and society.

We have been making improvements in many areas within the system, but huge systemic problems have existed for decades and are being supported by those we continue to allow to serve as our elected officials. We can likely improve to being somewhat less than mediocre without fixing that problem.

We are unlikely to even be able to reach mediocre without the political parties changing their support for the entrenched interests that have retained such a poor system for so long (or us getting new political parties which doesn’t seem so likely and even if we did they would then have to also take a better approach on health care, which seems like, but isn’t necessarily certain). Since it is impossible to find a rich country with a health care system that has noticeably worse results and it isn’t possible to find any rich country that spends more than 35% less than we do, it is hard to imagine anyone supporting a worse health care system than the current one in the USA, but I suppose it is possible.

The direct accounting costs of the USA system are horrible, and those are just the direct accounting costs – it ignores the costs of millions without preventative health care, sleepness nights worrying about caring for sick children without health coverage, millions of hours spent on completing forms to try and comply with the requirements of the health care system’s endless demand for paperwork, lives crippled by health care bankruptcies…

To some extent the “Affordable Care Act” addresses some of the issues with tying health care to the employer (as the USA has done) and issues with pre-existing conditions. Those are both tremendous improvements. But the ACA leaves completely (essentially) unaddressed the systemic failure that result in the USA paying twice what other rich countries do for no better results. The ACA has some minor tweaks to try and reduce how costly the USA health care system is, but those are incredibly minor and don’t amount to even 5% of the change needed in that area just to get the USA to extremely costly compared to other rich countries (say lowering our expenses so we are only 50% more expensive than all the other rich countries instead of 100%).

And even just the relatively minor improvements the ACA made have, and continue to, drawn huge response from those who have successfully blocked improvement of the USA health care system for the last few decades. I don’t object at all, in fact I encourage, debate to improve how we implement improvement to the broken USA health care system. Continuing the last few decades of obstructionism however is not something I support, in fact it is something I find incredibly objectionable.

There are very challenging issues address to have a great health care system. Given how poorly we have done in the USA for decades there are some not that challenging improvements to make. We have given those supporting the current system decades to just do a poor job compared to every other rich country and they have failed. They don’t even have very stiff competition. Singapore is doing some good stuff, but people can object that they are small (Japan also does some good things, so do a few countries in Europe). Still it seems like we could learn a great deal from them. But overall rich countries don’t do very well, and yet compared to these poor performances the USA stands out as extremely poor in comparison to them (how you spend twice as much and still do no better is amazing). And that this goes on for decades and the special interests have prevent reform is incredible.

Sure investment bankers have done well turning the government into serving their interests at the expense of the country but it is hard to say they have done nearly as much as the health care system. Given that we are pretty easily spending $1 trillion a year (maybe $1.5 trillion) due to how bad our health care system is (compared to other rich countries) means we are willing to continue to support a system costing us in excess of $1 trillion a year. I don’t think investment banks are able to siphon that much out of the economy through their directing Fed, SEC and Treasury department policy.

The cost to continue to support such a costly and poorly run USA health care system is becoming an increasingly dire issue as we have the population in the USA age. Health care spending for those over 50 increases drastically. And the economic benefit people provide decreases drastically after retirement (for most people 60 to 70 years of age). We face a huge problem if we don’t at least improve for spending 100% more than other rich countries to spending say 60% more. Even that will be a huge drain on our economy but the USA has so much wealth we likely could support that much waste (likely that cost will be over $1 trillion a year, if we don’t make those modest improvement costs will likely be over $2 trillion a year). Those costs just mean we have $1 or $2 trillion less to spend on other areas (education, new cars, police, smart watches, coffee, air travel, military…). As you can imagine it takes quite a lot of reduction in those areas to get to $1 trillion, getting to $2 trillion is very hard to imagine.

Comments

This is a great post – very informative and insightful, thanks a lot for it. Would you care to read a 14 year old (me!) ‘s blog about finance and economics? Follows and sharing to your friends is greatly appreciated by this beginner 🙂

thefattomato on
April 12, 2015 8:38 am

Healthcare costs are dependent on healthcare needs, and the US has more healthcare needs than other western countries because the US is so morbidly obese, which leads to a great many healthcare needs that other countries do not need to overcome, and therefore do not need to pay for.
As for the main point of this article, US healthcare may not be a great value for money proposition, but it is order of magnitudes better value for money than US economists or their friends the investment bankers who have managed to produce nothing of value in the last three hundred years, and who’s economic experiments like sub-prime mortgages cost a great deal more than one trillion dollars a year in lost productivity.

[…] individuals and components of the USA healthcare system but at the overall system level it is still a huge problem for the economy of the USA and for millions of individuals forced to interact with that system in ways that are extremely […]